- One of the biggest overhangs is Disney's
Disney's path to becoming "a global player in streaming" is in sight, but the media and entertainment giant will need to surpass some significant hurdles to get there, according to a note from RBC Capital Markets.
The company has taken an enormous leap into the video-streaming world by striking a $52.4 billion deal to acquire21st Century Fox's film and TV assets, which include pay-TV channels such as National Geographic and FX. That deal followed the acquisition of BAMTech, a direct-to-consumer streaming service meant to support Disney's ambitions for ESPN.
Disney's streaming efforts have slowed down, however, according to the RBC analyst Steven Cahall. In the note, he says Disney stock "has been tethered to ~$100/sh as a few key issues slowly work their way towards resolution."
While regulatory approval of Disney's 21st Century Fox tie-up is pending, the company is also awaiting a government decision on the AT&T-Time Warner merger for a glimpse into its rationale. The US Department of Justice sued to block AT&T's planned $84.5 billion takeover of Time Warner in November. Such an action could have significant repercussions for Disney's ambitions.
Adding to Disney's list of concerns is Comcast's decision to launch a competing $31 billion bid for the British broadcaster Sky, which is partly owned by 21st Century Fox. Chairman Rupert Murdoch has made several attempts to increase 21st Century Fox's stake in Sky from 40% to a majority 61%, though the efforts suffered some setbacks at the hands of European regulators. Investors fear Comcast's takeover attempt could spark a bidding war among three media titans.
Moreover, Disney recently announced a reorganization and the creation of a direct-to-consumer and international unit. Cahall says this move "leaves questions about the model for FY19+," particularly as the company shifts focus to online and mobile viewing. This signals that Disney is likely to invest more in new content and that there will need to be a rerating of the company as it grows larger and is made up of media and nonmedia assets.
"DIS remains our favorite longterm idea but we acknowledge that the complexity of the story and aforementioned overhangs make it less likely to be a top 2018 Media stock," Cahall said.
Cahall maintained his price target of $135 a share.
Disney's stock was trading at $101.24 a share on Friday and was down 9.44% for the year.